Loans & Finances Today

The importance of matching your product to the manufacturer with the best “fit” for that product should not be underestimated. Your best chance of getting your product to market is in having it picked up by a company that already distributes similar products to the various retailers. Retailers almost never make the time to talk to an independent inventor with only one product and they will rarely, if ever, disrupt their planogram, or map of the store space, to make room for a one-product vendor. Getting your product  with a manufacturer who already has the retailer’s attention and shelf space solves these problems handily.

Our own personal story is the perfect example of this. While we were patent pending we manufactured and sold Ghostline® ourselves. We sold it to small office supply stores and teacher stores. That obviously was not our marketing goal at the same time, so we were also contacting all the large mass merchandising stores, such as Wal-Mart, K-Mart, Target, Kroger, Fred Meyer, etc., where we eventually wanted to see Ghostline® offered for sale.

When we were able to get someone to talk to us, which was a rare event, we heard the same refrain over and over again. They all said, “We don’t carry products from one-product vendors. Get your product with one of our distributors and we’ll be happy to carry it.” Most of the retailers would not talk to us at all because all of their buyers’ time was taken up meeting with their regular distributors. It would have been much too time-consuming to meet with inventors of individual products.

Contact retail buyers in a professional manner if you choose to manufacture and distribute your product yourself. Do not attempt to get their attention with gifts or gadgets. This is a dead giveaway that you are an amateur and it will destroy your chances with them.

If you can identify manufacturers who already have the distribution channels in place and your product would be a logical extension to their existing line of products, it will be a simple matter for them to add your product. In other words, these manufacturers already have shelf space in most or all of the retail outlets that would normally be expected to carry a product such as yours. The simpler it is for the manufacturers, the more likely they will be to give serious consideration to your product for licensing. Manufacturers like to license products for which they already have allotted shelf space in the stores. They can simply remove one of their slow selling existing products and replace it with your new, exciting and potentially good selling invention.

Some independent product developers (i.e. inventors) target specific manufacturers and deliberately develop products that fit into their existing product line. This helps to maximize the inventor’s chances of success because he is staying within his “comfort zone” with products with which he is familiar.

In simple terms, your portfolio should reflect your personality as a saver, investor, and speculator. Pure savers will want all their money in savings instruments, pure investors will want it all in investments, and pure speculators will want it all in speculations. Most of you, however, will want to have some money in two or all three types of investments. The only way to determine amounts is to watch how different ratios affect your emotions.

For example, retirees are sometimes advised to have five years of living expenses in savings instruments. They can then place the rest of their money in investments and speculations. However, many retirees are unhappy with the low returns from savings instruments. Being more investors than savers, they will cut down to one year or even a few months of savings instruments and put the rest in investments. This will increase both their returns and happiness.

Other retirees will not want anything in investments. They will only be comfortable with everything in savings. While they may start retirement with five years of savings, eventually they will have twice their life expectancy in savings.

Anything sold as a limited partnership is a speculation. As a limited partner, you give up the right to control the investment and pay huge fees to those who do control the investment.

Limited partnerships work as fun money. Stage plays and movies are funded through limited partnerships. Returns are unpredictable and far more often negative than positive. Based on figures cited in the June 18, 2001 issue of Barron’s, more than 80 percent of the time, you lose every penny invested. Nevertheless, you do get to meet the stars, attend at opening night, secure seats for friends and family, and brag about an occasional hit.

Limited partnerships are also used to sell interests in airplanes, ships, train cars, heavy machinery, or any asset that requires a large capital investment. Overconfidence, again, is your enemy. The promoters will show you how valuable the asset is, how it will be leased or sold at a profit to a highly secure and profitable end user, and how reasonable their fees are for the service they are providing. You will have to qualify as an investor and will be told that you are one of a select group of individuals being offered this special deal for a limited time only. Once your ego has calmed down, you must ask: If this is such a great investment, why didn’t the users just get a bank loan and buy it themselves? In fact, why didn’t the promoters just get a bank loan and buy it themselves?

Remember, anything sold as a limited partnership is a speculation. Solid real estate, sold as limited partnerships, resulted in huge losses a few years back. Investors compatible with real estate were not compatible with RELPs. The packaging of any investment can affect its emotional impact on you. In the next chapter, we will look at packaging and other aspects of form that affect you even though the substance of the investment may otherwise be within your comfort zone.

Undeveloped land is for optimists. The idea is to buy the land, do absolutely nothing, and then cash out at a huge profit.

Overconfidence is an issue. The factors that will increase or decrease the value of your land are not predictable. Raw land has many uses or none.

The person who sold it to you knew more about the prospects than you do and he wanted out. The Realtor wanted you in as she collected a nice commission.

Laziness is another issue. Extensive research is required to prevent a huge loss. Land in a flood zone or on a fault line may be worthless. Welllocated land that cannot be subdivided into marketable lots has no value.

Environmental contamination has ruined millions of acres. Even if your land has none of these problems, you are powerless over the factors that will increase the value of your dirt. Cities grow in unpredictable directions and fall into recessions, depressions, even ghost towns. Vacation spots are hot and cold. Farm uses are not predictable. Meanwhile, taxes must be paid and assessments can come without warning. In addition, you have to keep the mortgage current, if you were able to find one.

Currently, farmland is of interest because the returns are not correlated to the returns on U.S. stocks. Watch for overconfidence. Lack of correlation with U.S. stocks is only a good thing if returns are at least as high as inflation.

Many speculators currently believe that farmland, crops, and livestock are about to turn up for a sustained period. They argue that farmland is disappearing at a rate of a million acres a year as the cities and population grow. Demand will increase and supply will dwindle. However, other speculators are selling out. They believe that supply will grow faster than demand as agricultural technology improves and cheap imports flood the market.

They also see farm profits being squeezed. On one side, high-tech seeds are becoming more expensive, energy costs are rising, and fertilizers are more expensive. On the other side, processors and consumers pay lower prices and a fluctuating dollar hurts overseas sales.

No one knows for sure how this speculation will work out. That is why it is a speculation. Historically, overconfident speculators have lost on farms.

The most common farm scenario is this: Your grandparent or parents grew up on a farm. You live in the city and enjoy it. You have inherited the farm, either alone or jointly with your brothers and sisters. The farm has not produced a profit in years. The rent for the farmhouse just covers the expenses.

The lease on the land is tied to profits from the crops or trees. Most years, there are no profits. Measuring your return against what you could have gotten in stocks, bonds, or commercial real estate would show how poorly you have done. But you do not measure your return against any benchmark. This is all fine as long as you remain in denial. As long as sentimental attachment works for you, stay with it. Once it breaks down, you will realize that investing in farms, livestock, and crops is rank speculation.

Farmland, ranch land, livestock, and live crops have not kept pace with inflation since the Industrial Revolution. Periods of shortage and high prices are quickly followed by excess and prices below cost. With a few exceptions, only government support keeps farms and ranches viable at all. Small, self-sufficient farms — Amish communities, for example — are thriving in a modest way. For most farms and ranches, though, prospects are bleak.

What happened was extraordinary. RELP returns were piddling in the mid-1980s. Investors were told that they had paid too much attention to tax deductions; they needed to focus on deals that made economic sense. Promoters produced charts showing rising rents and property values and sold new RELPs. Then prices plummeted. By the early 1990s, most partnerships were bankrupt. Underneath the tax deductions and the economic sense, the real cause of all the losses was discovered. The general partners and promoters extracted huge fees from RELPs in their pursuit of high-leverage strategies. All profits and most of the investors’ capital contributions were plundered. While the  romoters became multimillionaires, the investors took incredible losses. Promoter greed can turn a solid investment into a sure loser.

Today, RELPs remain tainted as speculations. Limited partners have no control over general partners’ actions and compensation. Tax benefits were eliminated.

As real estate again takes on importance as an investment of choice, RELPs are sure to reappear. Promoters will see another opportunity to legally steal millions. Overconfident speculators are sure to believe it will not happen again, or at least, it will not happen to them.